The debate over the impact of stock-index derivatives has surprisingly long roots.

In 1982, when Dow Jones filed suit against the Board of Trade to prevent it from trading futures on the industrial average, the company's attorney at the time said its reputation would be impugned.

Futures trading is a speculative activity, and "all kinds of scandals" have been associated with futures markets, the Dow Jones attorney told a Cook County judge. Dow Jones prevailed in the suit.

The stock market crash of 1987 brought even greater defamation, as New Yorkers seeking a scapegoat pointed west to the Merc's Standard & Poor's 500 pit.

Academic studies conducted in the aftermath of the crash, including one headed by Miller, concluded that stock-index futures weren't to blame.

Dow Jones, which stands to collect millions of dollars in licensing fees for the futures and options contracts launched Monday, has changed its tune since the lawsuit 15 years ago.

"We are entirely convinced these new investments . . . will be good for investors, good for the markets, good for our new partners and good for Dow Jones," company Chairman Peter Kann said Monday.

Still, many securities industry stalwarts are far from convinced.

Their main concern: program trading, when professional money managers trade a portfolio of stocks at the same time they trade the matching derivatives.

Using computer programs for maximum speed, those pros can make a quick profit by taking advantage of price discrepancies among the separate markets.

But such trading can be disruptive, making stock prices appear to move capriciously--and that turns off investors, said Philip Hummer of Wayne Hummer & Co., a Chicago-based regional brokerage.

"It's a shame large institutions can use the liquidity of the marketplace for their short-term advantage," said Hummer. "It's manipulation. It gives the impression it's a casino."

Yet volatility can work to the advantage of small investors as well, giving them the opportunity to buy or sell when the market is out of whack in their favor, said Oppenheimer's Schwartz.

And program trading rarely disrupts the market for more than a few hours at most, added Brian Wesbury, chief economist at the Chicago financial firm Griffin, Kubik, Stephens & Thompson.

He thinks the new Dow products have a silver lining: "Program trading can make the market move a lot in a short period of time, but being able to use index futures to hedge portfolio risk adds to stability," Wesbury said.

"Professional investors use the S&P 500 as a hedge," said John Silvia, chief economist at Zurich Kemper Investments. "These are much less of a hedging vehicle, and more a speculative vehicle, but not enough to move the market. It's too small a game."

Even so, New York won't be able to ignore Chicago. The city's futures exchanges start trading their stock-index futures contracts 15 minutes ahead of the NYSE.

That could be problematic, noted Miller, since investors are reluctant to take positions before the underlying stocks begin trading. But at least it guarantees that in the minutes before the opening, the eyes of the financial world will be on Chicago, for better or for worse.

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